October 2018

Monthly Equity Monitor

Highlights:

“After a promising first half of the year, the world economy now seems to be losing momentum. Declining commodity prices and composite purchasing managers indices point to softer GDP growth, the latter not surprising amidst rising trade barriers and the ensuing deceleration in global trade volumes. Export focused emerging markets remain under pressure, although related corporate defaults have potential to rattle global financial markets and hence advanced economies as well.”

• “A sixth consecutive quarter of above-2% real GDP growth is in the cards for the U.S. economy. Consumption spending remained strong in Q3 buoyed by a healthy labour market and personal income tax cuts. Investment was also supportive of growth during the quarter thanks in part to elevated business confidence. All in all, the data does nothing to change our view that 2018 real GDP growth will be close to 3% and well above potential. Encouraged by a buoyant U.S. economy and rising inflation pressures, the Federal Reserve will continue to normalize policy in 2019, albeit at a slower pace than this year.”

• “After months of negotiations, Canada finally agreed to a revamped trade deal with the U.S. and Mexico. The “United States-Mexico-Canada Agreement” (USMCA for short) will replace NAFTA. Our Canadian GDP growth forecast for 2019, which had assumed a deal would be reached, is unchanged at 1.9%. But with this earlier-than- expected agreement, we’ve brought forward the timing for C$ appreciation, now expecting USDCAD to reach 1.25 by the first quarter of next year.”

** This extract from Monthly Economic Monitor, Highlights, National Bank, Financial Market, October 2018.

Krishen Rangasamy

Senior Economist

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